How to manage your legal business documents
As a small business owner, you create a significant amount of paperwork. Many of these documents are essential for your small business to legally operate. And between all your employee records and each one of your client contracts, actually staying on top of that paperwork is easier said than done.
However, failing to do so can have serious consequences for your business. These outcomes may range from inconvenient — such as having to stop work to locate a document, resulting in productivity decreases — to downright devastating — such as getting in trouble with the Internal Revenue Service (IRS) for not properly maintaining your tax records.
For the continued success of your business, it is critical to learn how to properly obtain, organize, store, and share all that legal paperwork.
Acquiring (and maintaining) the proper licenses and permits
First on the to do list, make sure your business license and any other work permits you need are in order. You will put your business at risk if you do any work without being fully licensed.
The actual documents you need will depend on several factors, including:
- Business structure: Certain business types are more heavily regulated than others. Most corporations, for instance, need thorough documentation to begin operations, while sole proprietorships don’t typically need any formal registration to conduct business.
- Location: Each state in the U.S. has its own rules governing business licensure, some of which are far more formal and thorough than others. Even cities, counties, and other local jurisdictions may have unique licensing requirements.
- Industry: The type of products or services your business provides may also dictate what kind of license or permit you need. Some states and municipalities further break down licensure requirements by industry. If, for instance, you work as a building contractor, you may need a contractor’s license in addition to a business license. If you own a bar or restaurant, you’ll likely need food service and liquor licenses, as well as food safety certifications for each of your employees.
After getting your licenses and permits, do not forget to keep them active and up to date. Many licenses expire every few years, if not annually. Should your license lapse, you could be subject to fines and penalties by the relevant licensing body. Be sure to see the appropriate licensing body in your jurisdiction to learn more about the specific paperwork you need, as well as the steps you need to take to maintain it.
Once you have your licenses and permits, consider displaying them openly in your establishment. This is mandatory in most municipalities, but either way, it is a good opportunity to showcase your legitimacy to customers and clients. Whether you display or store your licenses and permits, just be sure you are able to quickly find them if the need arises.
Signing and securing contracts
From employment to client work, contracts are a fundamental part of virtually all areas of business. As such, it is vital to create contracts that benefit your organization and do not leave you vulnerable to potential problems. To ensure your contracts properly protect your interests, it is best to work with a legal professional before considering any document “final.”
If contracts are a regular part of your business, consider using digital contracts. Rather than the average eight days, you can often get the signatures you need in only three hours, allowing you to get your work done more quickly and avoid time-wasting bottlenecks. This also makes it easier to stay organized, as you can prioritize the projects you’re actively working on and not lose track of contracts that are awaiting signatures.
Once contracts are signed, take care to store them as safely as possible. If you use physical contracts, make sure they are appropriately labeled and organized before securing them. If you use digital contracts, follow cybersecurity best practices whether your documents are stored locally or in the cloud. You may also keep both digital and physical contracts, so you always have a backup copy, but this will require additional security measures.
What makes a contract legally binding?
Not all contracts are legally binding. To be enforceable, contracts must have:
- An offer made by one party that the other accepts.
- A clearly communicated benefit that each party receives from the contract.
- A mutual understanding that both parties are beholden to the obligations laid out in the contract.
Further, all parties must be legally able to sign the contract. Without all of these elements, a contract may not be enforceable. If you have a non-binding contract, you cannot take the other party to court if they fail to hold up their end of the bargain.
Keep in mind that oral contracts can be legally binding. However, they are incredibly difficult to prove the existence of, let alone enforce. For this reason, it is better to use written contracts for your business. Further, most written contracts require a signature — either a wet signature or an electronic signature — to be valid. This way, you cannot unintentionally agree to something during a simple conversation and jeopardize your business.
Recording financial and tax documents
The longer your business runs, the more financial records you will create. If you don’t stay on top of things from the beginning, organizing these documents can prove challenging.
However, to continue running your business without issue, you need to keep your business’s tax documents and financial records in order. The IRS recommends that you keep business records related to the following items:
- Sales receipts, invoices, and any other records that prove the income your business takes in
- Proof of purchases your business has made
- Other expenses your business has incurred during operations
- Deductions and write-offs for certain kinds of expenses, particularly those related to travel and entertainment
- Assets and other pieces of property used to conduct business
- Employment taxes and other employee records
The IRS recommends business owners keep records for at least three years. However, there are situations in which you may need to retain documents for a significantly longer amount of time. There are even some records, such as financial statements and bills of sale, that you should keep permanently.
Of course, it doesn’t hurt to be thorough. Hold on to any other relevant financial documents that you may need in the future. While you cannot bring back a document you have destroyed, you can always dispose of a document you have kept.
Like contracts, you can organize and store your tax documents either physically or digitally. Use whatever format or system works for your business, so you can retain and keep track of the necessary documents.
Storing and sharing sensitive legal documents
Document management does not end at creating, gathering, and organizing your records. Once those matters are taken care of, you also need to protect them so only authorized individuals have access. Further, there will likely come a time when you need to share some of those documents with others, and it is just as important to ensure they are fully secure before, during, and after their journey.
Whether you need to store your sensitive documents for your own use or share them with others, here are a few ways you can protect them:
- Lock it up: If you are storing any hard copies of these documents, put them somewhere safe. Do not provide universal access to your employees or customers. Store them in a locked drawer, file cabinet, or room, and only take them out when you need to.
- Protect with passwords: You can also keep digital documents under ‘lock and key’ with passwords. That way, only individuals with the password can access the documents. Be sure to develop strong, unique passwords for each of your documents — and change them regularly — to ensure they are fully protected.
- Encrypt everything: Whenever you need to send something, encrypt your digital documents. Encryption takes text and “scrambles” it, so the text is unreadable to unauthorized users. If you send a sensitive document and someone intercepts it, they will not be able to read the document. Only people with the “key,” similar to a password, can unscramble and read the document.
- Be careful with email: It is best to avoid sending any sensitive information via email. It is not as safe as other tools that are now available. Try using a file transfer tool or a cloud storage system instead. Or even better, use an e-signature solution that includes secure delivery.
- Go old school if necessary: If there’s something you cannot send online via one of the options above, you can consider using a fax machine or the postal service, though in the latter case interception and damage are additional concerns. Regardless, ensure you have the delivery details letter-perfect, and hang on to the receipts that each option offers.
Licenses, contracts, financial records, and many other documents are too important to lose or lose track of. Whatever method you use, make document security and organization your top priorities. This will reduce the chance of a paperwork mishap — and position your business for operational success.